Industrial production up, so does inflation

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SME Times News Bureau | 13 Sep, 2017
Consumption-driven demand and seasonal factors pushed India's factory output higher -- but retail inflation also rose along with, official data showed on Tuesday.

According to data furnished by Ministry of Statistics & Programme Implementation, August's consumer price index (CPI) inflation shot up a full one percentage point to 3.36 per cent from 2.36 per cent in July.

The rise in inflation was led by a spike in food prices, as on sequential basis, the country's Consumer Food Price Index (CFPI) rose to 1.52 per cent during August when compared to the previous month.

However, on a year-on-year (YoY) basis, the country's August retail inflation was lower than the 5.05 per cent CPI rate reported for the corresponding month of last year.

As regards the numbers on Index of Industrial Production (IIP), what should come as some respite is the factory output's rise in July.

The output rose by 1.2 per cent as compared to the same month of last year. It had declined by (-)0.1 per cent during June this year.

In contrast, the IIP had expanded by 4.5 per cent during July of 2016.

Data released by the Central Statistics Office (CSO) showed that July's modest turnaround was mostly led by a revival in electricity, which grew at 6.5 per cent over the same month last year, and in "Other manufacturing" that grew at an impressive 20.9 per cent year-on-year.

Manufacturing output, which has the maximum weightage in the overall index, inched up at a marginal 0.1 per cent in July. The mining output during the month in consideration rose 4.8 per cent

Among the six use-based classification groups, the output of primary goods grew by 2.3 per cent, consumer non-durables by 3.4 per cent and infrastructure or construction goods by 3.7 per cent.

In contrast, the output of intermediate goods declined by (-)1.8 per cent, consumer durables by (-)1.3 per cent and capital goods by (-)1 per cent.

As per the CPI data, retail inflation on a YoY basis edged higher due to a rise in the prices of food items like vegetables, cereals, milk-based products, meat and fish.

The data on a Y-o-Y basis showed that vegetables in August became costly by 6.16 per cent, while cereals prices rose by 3.87 per cent.

Other notable categories such as milk-based products became dearer by 3.58 per cent and meat and fish recorded a rise of 2.94 per cent.

Food and beverages during the month under review recorded a rise of 1.96 per cent over the same month last year.

Among non-food categories, the "fuel and light" segment's inflation rate accelerated to 4.94 per cent in August.

Commenting on the IIP for the month of July 2017, Ficci Secretary General Sanjaya Baru said: "The slowdown in manufacturing and particularly in capital goods sector reflects depressing investment outlook. As the slowdown is more pervasive this time in terms of number of sectors, it calls for urgent need to revive investments through reforms especially at the State level and also by bringing down interest rates."

"As the consumption demand rises during festive season and investment too due to government measures taken in the last few months, we can expect growth to pick up in coming months," Baru added.

On CPI inflation, Rishi Shah, Economist with Deloitte said that retail inflation rose in line with expectations and is likely to harden further in the coming months.

"Going ahead the food market will need to be managed effectively to rule out any untimely spikes in inflation while core inflation is likely to remain high due to the transient impact of GST," Shah said.